Foreign Relations of the United States, 1952–1954, The Near and Middle East, Volume IX, Part 1

880.2553/4–1452

No. 250
Memorandum by the Chief of the Petroleum Policy Staff (Eakens) to the Director of the Office of International Materials Policy (Brown)

secret

[Washington,] April 14, 1952.

Subject:

• Memorandum of Meetings in Paris, April 7 and 8, 1952.

1. Meeting of April 7 with Mr. B. E. L. Timmons, Deputy Director, MSA Mission to France, on the question of Middle East oil prices. (Present: Timmons, MSA French Mission; Bransky, MSA/E; Dwyer, MSA/W; Sundt, Petroleum Attaché at Embassy Paris; Swihart, RA; and Eakens, PED.)

MSA/E thought it would be useful while Mr. Dwyer, Director of the Petroleum Branch of MSA/W, and I were in Paris to have a meeting on this question with Mr. Labouisse or Mr. Timmons. As Mr. Labouisse was not available, our meeting was with Mr. Timmons.

MSA in Paris did not know very much about this problem and Mr. Dwyer began by describing its present status. The essence of his summary was as follows:

ECA and MSA have been financing purchases of Saudi Arabian crude oil from Caltex, Jersey, and Socony at $1.75 per barrel, whereas the oil is sold to those companies by Aramco for $1.43 per barrel. While the companies contend that Aramco sales are intercompany sales and therefore not subject to the requirement that ECA purchases shall be at the lowest competitive price, some sales nevertheless have been made at a price of $1.44 to Atlantic Refining Company for shipment to the United States. On oil moving through the Trans-Arabian pipe line, the companies charge themselves 26 cents per barrel, whereas the price differential on crude oil at the two ends of the line is 66 cents per barrel—$1.75 at Ras Tanura and $2.41 at Sidon. MSA has discussed the matter with the oil companies. Some of them have generally indicated that they would like to reach a compromise solution. None, however, have come forward with any concrete proposal, and the problem of getting a refund for the overcharges has been turned over to the Department of Justice. Justice has sent a letter to the oil companies asking for a refund. Dwyer did not know the basis or the exact amount of the refund which Justice was asking but assumed that the latter was about $75 million. In addition to the question of the recovery of the overcharge on past shipments, there is also the question of future prices. If the prices are set too low the companies may refuse to ship. If this occurred, the MSA countries would be faced with paying for Middle East oil with free dollars. MSA, without trying to set any price for the future, might simply refuse to finance any more Middle East oil shipments.

The general reaction to this statement of the problem was that it would not have any immediate repercussions on France. France already has all the economic assistance to be made available during this fiscal year. Hence, whatever the outcome of this problem, France will in fact be financing its oil purchases during the remainder of the fiscal year with free dollars. After the end of the fiscal year France probably would find it difficult to finance Middle East oil purchases with free dollars. Even now France is bringing pressure on the oil companies to accept more than 25 per cent in francs for dollar oil in order to spread the available supply of dollars over all essential requirements.

It was decided that MSA in Paris should follow the problem closely but should not take any action with regard to it without a request to do so from Washington.

2. Meeting on April 7 with Mr. Gordon, Manager of Caltex in France. (Present: Gordon, Sundt, and Eakens.)

Mr. Gordon had one major complaint: Caltex’s operations are completely hemmed in and repressed in every direction. He said that there had been some improvement in the general atmosphere since Blanchard replaced Guillaumat as Director of the Office of Petroleum. Blanchard, in contrast to Guillaumat, would at least listen to what the company had to say about its problems even if he had not done anything about them. Caltex’s principal difficulty is in its inability to expand its refining capacity and its distribution facilities. All refining in France is conducted on the basis of licenses granted for 15 years allowing each company a specified percentage of the total crude oil to be refined. This apparently cannot be changed until 1965 when the current licenses expire.

There was nothing new from the standpoint of Caltex in regard to the question of receiving more than 25 per cent in francs for oil supplied to France. They have not agreed to take any larger percentage in francs and have so informed Blanchard. The next move presumably is up to Blanchard.

3. Meeting on April 8 with officials of Standard Française des Petrole. (Present: Porters, Manager, and Doughten, Sundt, and Eakens.)

The situation in France in so far as Jersey is concerned seems to be generally satisfactory except for the demand that the company take a larger percentage of francs for the dollar oil which it supplies. Jersey, like Caltex, is standing firm on its position that it is not able to utilize more than 25 per cent in francs. The Jersey officials admitted that there were certain things which they might be able to do to use francs on a temporary basis, but that they were not willing to agree to do so as a part of any permanent arrangement. This was the position the company has continually taken in the past and in regard to which its officials in New York have previously informed the Department.

The company has cancelled ten cargoes of crude that were scheduled for delivery to France during the remainder of the current fiscal year, due to the inadequacy of dollars to finance French oil imports. This will not affect the supplies available to France, however, during that period since the company will continue to run its refinery at capacity on crude oil drawn from stocks and in carrying out processing arrangements with other companies. With this reduction in scheduled shipments, Jersey apparently has had sufficient dollars allocated to cover the remaining shipments through the end of the current fiscal year.

With respect to the availability of dollars to cover essential imports, there was the feeling of the SFP officials that the oil industry is being discriminated against in the dollars being made available for oil. Although the inventories are piling up in the textile industry, it was reported that dollars in large amounts are still being made available to cover cotton imports, presumably to prevent unemployment in the French textile industry.

Jersey was interested in what the French financial position in regard to aid will likely be at the end of the fiscal year, but neither Sundt nor I could throw any light on this question.

Although the officials with whom we talked were aware of the Middle East crude price problem, they did not mention it in the discussion.

4. Meeting on April 8 with Mr. Blanchard, Director of the Office of Petroleum. (Present: Blanchard, Sundt, and Eakens.)

Blanchard has recently replaced Guillaumat as Director of the Office of Petroleum in the French Government. Guillaumat, a French Army Colonel, left to become the government member of the Atomic Energy Commission, and Blanchard, who was Guillaumat’s assistant, was elevated to the position of Director.

Blanchard expressed a number of strong views, which he apparently firmly holds, on a number of questions. He does not like Jersey. He said that Jersey is the one large company that has not invested any dollars in France since the war. He also said that Jersey is the company that is preventing the other American companies from increasing the percentage of francs which they are willing to take for dollar oil. In response to a question as to what Jersey could do with additional francs since the company’s operations already generate more francs than required for its operations, Blanchard said that the company could invest them in other industries. The only one he specifically mentioned was rubber. He had the same comment in regard to Jersey not having brought additional dollars into France. The company, which already had a large operation in France and more francs than it needed in its operations, has in fact been the only company which has not imported new dollars into France.

Blanchard contrasted Socony with Jersey. He mentioned in rather laudatory terms that Socony since the war has imported its own dollars to build two large modern oil refineries.

As for Caltex, he could not understand the company’s attitude. It wanted to expand its market position in France, yet two years ago when new 15-year refining licenses were being granted, Caltex refused to go in with a French group which would have welcomed a partnership with Caltex. He said that since Caltex had refused to participate with this French group they were stuck with their present percentage of refining until the existing refining licenses expire in 1965. The company had its last chance and passed it up.

In connection with Caltex’s operations, Sundt made the point that Caltex was continually receiving offers from small French companies to sell their distribution facilities. Blanchard said that this was one phase of oil operations in which he did not need American capital and know-how. He said that local French filling stations might be poor and dirty compared with those in the United States but they were adequate for France. He said, however, that he does need American know-how and capital in oil refining and transportation and that he was willing to have American companies participate in those phases of the industry.

Blanchard, who was to have been the French representative on the NATO Petroleum Planning Committee, was not present at the London meeting on April 2. He explained that his absence was due to the fact that he was in Morocco.

He profusely expressed his appreciation for the help which the United States had given him in making supplies of furfural available last fall. These furfural supplies enabled Compagnie Française de Raffinage to begin lubricating oil operations in some new lubricating oil facilities somewhat ahead of schedule and at a time when furfural was practically unobtainable. As regards future supplies, he mentioned that a small plant is under construction in Southern France and that another one is either already in operation or is being built in Morocco.

My general impression of Blanchard was that while very friendly, he has a number of strong ideas about the proper role of foreign oil capital in France, ideas somewhat contrary to those we generally espouse, and that the American oil companies are going to have their troubles operating under his regime.